There is an excellent analogy in freedom of religion. At one time, churches had the same sort of monopoly that states now have. Religion was established by state. Bloody wars were fought over religion, dissenters were jailed, maimed or burned. Freedom of religious conscience was suppressed. No doubt in those dark times, the suggestion that different religions and cults could coexist in the same territory would have been greeted with derision by virtually everyone. And yet, out of the darkness, freedom of religion came about in some places. Today, people deal with their neighbors generally without knowing or even caring which denomination if any they profess. Episcopaleans no longer brand Baptists, or whip Quakers through town - they invite them to neighborhood barbecues and their children play together. Panarchy is the political equivalent of freedom of religion.

De Puydt basically said the same thing as Gustave de Molinari, but with political rather than economic emphasis. De Puydt does gloss over some important issues - he assumes there is some impartial court to handle inter-governmental disputes. David Friedman shores up this area with his analysis of interaction between PDAs.

There are three ways in which such conflicts might be dealt with. The most obvious and least likely is direct violence - a mini-war between my agency, attempting to arrest the burglar, and his agency attempting to defend him from arrest. A somewhat more plausible scenario is negotiation. Since warfare is expensive, agencies might include in the contracts they offer their customers a provision under which they are not obliged to defend customers against legitimate punishment for their actual crimes. When a conflict occurred, it would then be up to the two agencies to determine whether the accused customer of one would or would not be deemed guilty and turned over to the other.

A still more attractive and more likely solution is advance contracting between the agencies. Under this scenario, any two agencies that faced a significant probability of such clashes would agree on an arbitration agency to settle them - a private court. Implicit or explicit in their agreement would be the legal rules under which such disputes were to be settled.

Under these circumstances, both law enforcement and law are private goods produced on a private market. Law enforcement is produced by enforcement agencies and sold directly to their customers. Law is produced by arbitration agencies and sold to the enforcement agencies, who resell it to their customers as one characteristic of the bundle of services they provide. - David Friedman, Law as a Private Good